403 (b) Omaha Public Schools

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1 403 (b) Omaha Public Schools

2 Introduction to 403(b) Tax Deferred Savings Arrangements This booklet has been prepared by the Compensation & Benefits Office in an effort to help you better understand Internal Revenue Code Section 403(b) and Omaha Public Schools procedures regarding it. We recommend that you review this booklet carefully if you intend to invest in a 403(b) arrangement or if you currently have a 403(b) arrangement. What is a Tax Sheltered Annuity/Mutual Fund Custodial Account? The terms Tax Sheltered Annuity (TSA) and Mutual Fund Custodial Account (MFCA) refer to a provision of the Internal Revenue Service Code 403(b) which allows Omaha Public Schools employees to defer a portion of their salary from taxable income through investment in a 403(b). (This booklet will refer to a 403(b) TSA or MFCA arrangement as a TSA. ) Payment of income taxes on this deferred salary and on its earnings are deferred until that money is withdrawn from the annuity or custodial account. What is the purpose of a 403(b) arrangement? The purpose is to save money and not pay income tax on the money saved until it is withdrawn either in a lump-sum or a monthly benefit. You pay no current income tax on the part of your salary that is put into a TSA. In addition, you do not pay current tax on investment earnings during the accumulation period. You can expect your income from a TSA account to be taxed once you begin withdrawals. Who can enroll in a 403(b) arrangement? Any Omaha Public Schools employee who is employed for 20 hours or more per week on a regular basis may invest in a TSA so long as that employee agrees to contribute at least $10.00 per month to the TSA. The maximum amount that may be contributed is governed by Internal Revenue Service regulations. It is the responsibility of the employees and their financial consultants to ensure that all tax regulations are met. Where can I obtain a 403(b) TSA? Most insurance companies, investment establishments, and financial planners offer these arrangements. 1

We recommend that you review this booklet carefully if you intend to invest in a 403(b) arrangement or if you currently have a 403(b) arrangement.

3 How do I find a good representative? The following are some questions you may want to ask the representative of the company you are considering, or the company that you currently have: What is the service charge that your company charges? What is the guaranteed interest rate that your company is paying? What are the interest rates this plan has been paying for the last 5 years? How often does your company send statements of the contract value? Is there a charge for a partial withdrawal and, if so, how much is the charge? Can the amount of contributions be decreased or increased without extra charge? Is it possible to take money from one company and invest it in another without having to pay taxes on the withdrawal? Does your company charge for this procedure? What are the sales charges or loads on a mutual fund investment? When can I begin contributions to a 403(b) TSA? You may contact your financial consultant anytime about a 403(b) arrangement. The School District will accept new 403(b) enrollments or adjustments to current elections on an open enrollment basis. New enrollments or changes must be submitted to the Compensation & Benefits Office 30 days prior to paydates. A maximum of three changes per calendar year will be permitted. What steps need to be taken in order to start a 403(b) arrangement? 1. Contact your financial consultant or the company he/she represents. 2. Complete an application for a 403(b) TSA. 3. Request a Modification of Employment Contract from the Compensation & Benefits Office. The two forms needed in the Compensation & Benefits Office by the enrollment deadlines are: 1. A copy of your application and 2. A completed Modification of Employment Contract. 2

charges? What is the guaranteed interest rate that your company is paying? What are the interest rates this plan has been paying for the last 5 years?

4 If I had invested in a 403(b) arrangement while with a former employer, can I maintain that arrangement and keep it active after my employment with the Omaha Public Schools? Yes. You are able to maintain a prior 403(b) arrangement and continue to make contributions to that same account while employed by Omaha Public Schools, provided your choice of investment companies is on the approved list for employees of the School District. Anyone wishing to maintain an existing account should contact the Compensation & Benefits Office for specific information regarding the details of this process. Are there any types of limitations? Yes. The 403(b) sponsor must have entered into an agreement with the School District to assume full legal responsibility for sponsorship of the 403(b) arrangement and full Internal Revenue Service wage reporting responsibility for policy riders, waiver of premium, and other coverage incidental to the primary purpose of the 403(b) arrangement. Be sure your agent is aware of the limitations before your contract is written. Beyond the investment in a 403(b) arrangement, are there any costs to the individual? Each company will charge administrative costs against the individual and will, most likely, subtract that cost from the return of the investment. Each company determines their cost differently, therefore, no information statement will apply in all cases. Nonetheless, it is an important factor which you should investigate thoroughly during your discussions with your financial consultant. If a person invests in a 403(b) arrangement and within a short period of time cancels the investment, it is quite likely, because of administrative and other company charges due against the TSA, that the individual may not be able to recover the original amount paid into the arrangement. For this reason, it is not, as a general rule, a good idea to use a 403(b) for short-term savings objectives. 403(b) arrangements are geared to long-term savings goals and will produce the greatest benefits if utilized in that manner. If I enroll in a 403(b) arrangement and later have financial difficulty, when can I stop my contributions? You may stop your contributions anytime, provided the proper Cessation of TSA Payment form has been executed and delivered to the Compensation & Benefits Office. However, there may be other options which you could exercise rather than stopping your 403(b) arrangement. Check with your financial 3

the approved list for employees of the School District.

5 as to other avenues. The cancellation will not be effective until you have personally informed the Compensation & Benefits Office in writing as to your decision to stop the plan. Do not rely on your financial consultant to make the proper contacts. What service does the School District provide in a 403(b) arrangement? Upon the proper completion of the application, the School District will withhold the designated money from each paycheck and it will be transmitted to the investment company you have chosen. The School District will neither accept nor perform any other administrative duties in respect to a 403(b) arrangement. Does the school district evaluate each 403(b) arrangement? No. The school district does not evaluate the various TSAs. Individual employees must evaluate the plans available and make their own decisions as to the choice of company and other details of the 403(b) arrangements. Does any company or agent have any type of sponsorship by the School District? Most emphatically NO. The School District does not endorse any company, agency or agent; nor does any company, agency, or agent represent the School District. Further, no company, agency, or agent, has authority to interpret the retirement system provisions to employees on behalf of the school district. The School District does not provide any company, agency, or agent, with the home address or telephone number of employees. How much money can I put into my 403(b) account? There are limitations on the amount of money you can contribute to a 403(b) arrangement. These limitations change on an annual basis. Consult your financial advisor regarding the current 403(b) contribution limits. However, you are responsible for ensuring that your contributions do not exceed your limitations. Contributions in excess of your dollar limitation may cause a loss of the tax-deferred status for your 403(b) arrangement. You may contact the Internal Revenue Service for a copy of Publication 571, a booklet that explains tax-sheltered accounts. 4

Upon the proper completion of the application, the School District will withhold the designated money from each paycheck and it will be transmitted to the investment company you have chosen.

6 If I have questions about the details of my TSA, whom should I contact? Contact your financial consultant or the home office of the company that issued the TSA. The School District provides no assistance concerning problems or questions that might arise concerning the terms of your plan or the tax provisions or problems concerning 403(b) arrangements. However, the Compensation & Benefits Office will assist with questions related to actual payroll deductions. How much money does the School District contribute toward my 403(b) arrangement? None. All contributions to a TSA are made solely by the employee through payroll deduction. Is there any connection between the 403(b) arrangement and the Omaha School Employees' Retirement System? None. Your contributions to the retirement system and the money paid to your 403(b) arrangement are handled separately. The administration, benefit structure, etc. of the two programs have nothing in common. Would it be wise for me to invest in a 403(b) arrangement? That s up to you. You know better than anyone what your financial picture is currently and what you expect for the future. Everyone has different financial goals in life and different ways to achieve those goals. As for a 403(b) arrangement, it is available for you if you want to use it. You have to make that decision. Compensation & Benefits Office 3215 Cuming Street, Omaha, Nebraska Telephone (402)

However, the Compensation & Benefits Office will assist with questions related to actual payroll deductions. How much money does the School District contribute toward my 403(b) arrangement? None.

7 Revised 3/

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